Published in Print: August 10, 2011, as Scandal Clouds News Corp.'s Move Into Education

Scandal Clouds News Corp.'s Move Into Education

Joel Klein, executive vice president of News Corp., left; Rupert Murdoch’s wife, Wendi Deng; and Rupert Murdoch leave a Parliament office building after Murdoch gave evidence to the Culture, Media and Sport Select Committee on the News of the World phone-hacking scandal on July 19.

When News Corp. announced last fall its entry into the education technology market, some observers said the media conglomerate led by Rupert Murdoch was a bad fit for education.

Between the ownership of conservative-leaning outlets like Fox News and a reputation for identifying opportunities to generate lots of revenue very quickly, News Corp. had a business model, they suggested, that wouldn’t mesh well with a world where public-employee unions hold influence and business development typically is gradual.

Now, just as News Corp. had appeared set to expand its education holdings beyond its recently acquired subsidiary Wireless Generation, those concerns are joined by a deluge of legal and ethical issues surrounding the phone-hacking scandal in the company’s United Kingdom division.

At the same time, New York state and city contracts awarded to Wireless Generation have prompted questions, and critics and industry analysts are closely watching the performance of Joel I. Klein, the chief executive officer of News Corp.’s fledgling education division, who went to work for Mr. Murdoch after an often-contentious eight years as chancellor of the New York City schools.

“They carry baggage with them,” Dick Iannuzzi, the president of the 600,000-member New York State United Teachers union, said of Mr. Klein, Mr. Murdoch, and News Corp. “They’re going to have to figure out how to overcome that baggage if they want educators to look at their work.”

But even in a time of crisis, if any company has the resources and internal culture to prevail, media experts say it may in fact be News Corp., the second-largest media corporation in the world behind the Walt Disney Co. News Corp.’s domestic holdings include the 20th Century Fox film company, Fox’s numerous TV enterprises, The Wall Street Journal, the New York Post, and the book publisher HarperCollins.

Officials at Wireless Generation, News Corp.’s only education technology acquisition so far, insist they are just another in a diverse line of reputable companies to join the conglomerate. They dispute suggestions in the New York City media that because Wireless Generation creates and sells data systems as part of its business, education agencies should be wary of a potential data breach, given the hacking into private phone information by News Corp.’s now-shuttered News of the World and allegedly by other Murdoch newspapers in Britain.

“I think everyone by this point is appalled by the allegations,” Zachary Silverstein, a senior vice president and the chief of staff of Wireless Generation, said last month of charges that include unsubstantiated claims of possible phone hacking stateside of victims of the Sept. 11, 2001, terrorist attacks.

“But to try to connect them to business units or others who have absolutely no connection,” he said, “is really a stretch and frankly unfair.”

Hiring ‘Star Power’

Analysts of the education technology industry say New York City-based News Corp. may be showing a willingness to follow a hands-off policy that leaves developing solutions—as well as trust—in the hands of individual companies like Wireless Generation.

In addition to Mr. Klein, prominent recent hires for News Corp.’s education division include Peter C. Gorman, the former superintendent of the Charlotte-Mecklenburg, N.C., schools; former New York City schools Chief Operating Officer Kristen Kane; and Diane Rhoten, the founder of Startl, a nonprofit group that specializes in linking up digital education innovators with funders.

“A company like News Corp. can afford to wait,” said Karen Billings, the vice president of the education division at the Washington-based Software and Information Industry Association, or SIIA. “Because of the people and the star power that they’re hiring, they could also afford to leave them alone for a while and let them do some really interesting innovative things.”

But Ms. Billings underscored that education clients will need to understand News Corp.’s motivations for entering the education market, as well as its long-term commitment. Both have the potential to be undermined by the continuing scandal over its employees’ news-gathering practices, which had also included payments to British police officers. Even as government investigations proceed in Britain, the FBI has begun probing for any infractions of U.S. law, including whether reporters sought access to 9/11 attack victims’ phone records.

Under its chairman and chief executive officer, Mr. Murdoch, an Australian-born news tycoon who is now a U.S. citizen, News Corp. has grown its brand by letting the outlets it absorbs maintain their own identities and business structures, Mr. Silverstein of Wireless Generation said. That approach to business fits well with both Mr. Klein and Wireless Generation, he said, and has resulted in a smoother takeover than he had anticipated.

“It’s a very entrepreneurial place,” Mr. Silverstein said of News Corp., which in November announced its purchase of 90 percent of Wireless Generation for $360 million. The transition has “been surprisingly smooth,” he said, “to be quite honest. … They very much let their businesses run their businesses.”

That approach has parallels to a strategy Mr. Klein adopted as chancellor of the 1.1 million-student New York City schools. Mr. Klein made his reputation as a school reformer based in part on his policy of giving principals and other school administrators increased autonomy in exchange for higher achievement results.

Mr. Klein also drew substantial fire during his tenure, however, particularly from teachers’ unions and some community groups, for what critics said was a too heavy reliance on measuring achievement by test results. They said teachers were being unfairly judged because of those results.

Offering Counsel

Mr. Klein, who is a lawyer, was tapped to give counsel to News Corp. in dealing with the hacking scandal. While a News Corp. spokesperson said in an email that Mr. Klein was only giving “strategic oversight” on the issue, he was very visible at or near the side of Mr. Murdoch and his son James last month in London, where the Murdochs testified before a parlimentary committee.

Mr. Klein has returned to New York from London, but declined to comment for this story.

In a June 10 article in the Financial Times, Mr. Klein suggested that the education division might soon make more acquisitions, and that the division would focus on companies with a profile similar to that of Wireless Generation. A spokesperson for News Corp. told Education Week that the time frame for future acquisitions remains unchanged despite the conglomerate’s current difficulties.

A 10-year-old, New York-based company that provides data systems, adaptive software, assessment tools, consulting, and other education services, Wireless Generation serves 3 million students and 200,000 educators across the nation, according to its website. It is well known for its involvement with New York City’s School of One middle school math program, an initiative begun under Mr. Klein that uses technology to personalize learning.

Mr. Silverstein said that growth plans for Wireless Generation had been unchanged since News Corp. acquired the company. As of mid-July, Wireless Generation had grown its staff to about 450 people, he said. That includes about 130 employees added in 2011.

Contracts Scrutinized

Wireless Generation’s work includes a planned three-year extension, reported in May, of a $1.5 million no-bid contract for a data system utilized by the New York City schools, and a $27 million no-bid contract to develop assessment-tracking software for the New York state education department that was reported in June. The latter project is to be funded through the federal Race to the Top competitive-grant program, which awarded New York state $696 million in its second round of grants last year.

Wireless Generation officials insist those contracts were gained as part of long-developing, independent negotiations and were not the result of any favoritism by or toward Mr. Klein, who officially assumed his job at News Corp. at the beginning of 2011.

But some observers suggest there has been at least an appearance of impropriety in the award of the contracts, especially since there appeared to be time to embark upon an open bidding process. And they assert that Mr. Klein could be viewed as using his sway with the New York City schools to position Wireless Generation as a city and state client.

“It looks like a sweetheart deal that was cut, and no one was looking out for the taxpayer or the student,” Susan Lerner, the executive director of Common Cause/New York, a government-watchdog group, said of the contract with the city school district. In situations like these, she said, “the public is instantly suspicious. And unfortunately, from past experience, it’s not without justification.”

More recently, some observers have suggested that fallout from the scandal involving News Corp. could jeopardize the $27 million state contract, since the state comptroller has to consider the business ethics of affiliated firms before issuing a contract approval, which could come as late as September.

Mr. Iannuzzi of New York State United Teachers, a joint National Education Association and American Federation of Teachers affiliate, said final blame for a “lack of transparency” in the awarding of the statewide contract to Wireless Generation falls with the state education department, and not Wireless Generation.

The state department of education provided documents showing that, in May, the state comptroller’s office approved the right to enter a no-bid contract, after the department petitioned on the grounds that it would expedite the processin accordance with Race to the Top guidelines. The department declined to comment further.

Mr. Iannuzzi added that if News Corp.’s education division is to gain the trust of educators, it needs to take more steps to explain its business actions than it is doing now. That includes not only clearly distancing itself from the charges surrounding the parent company’s British news operations, he said, but also from U.S. outlets such as Fox News and a perceived political slant that includes an “anti-union and privatization approach to education.”

Mr. Murdoch, for his part, has spoken expansively of the potential of technology to transform education. In a May speech at a forum of global technology leaders in Paris, he called neglecting the need to digitize education “an abdication of our responsibility to our children and grandchildren—and a limitation to our future.”

But Mr. Ianuzzi suggested that News Corp.’s education division will be seen to have ulterior motives.

“Is News Corp. attempting to establish itself in the education world for the purpose of advancing education, or is News Corp. investing in the education world to advance its own ideology?” said Mr. Iannuzzi, who said the possibility that News Corp. simply sees the opportunity to make a good profit seems unlikely to him.

“The experience with for-profits in charter schools,” he said, “demonstrates that if you’re getting into education to make a buck, you’re making a mistake.”

‘Rise Above Those Politics’

While Mr. Murdoch, Mr. Klein, and Wireless Generation may represent a distrusted triumvirate to teacher advocates and some other educators, Mr. Klein’s policies in particular appear to be far more respected in the education technology world.

James Steyer, the chief executive officer of Common Sense Media, a children’s-media watchdog group based in San Francisco, stressed that while many education leaders push for increased technology integration, Mr. Klein has also understood the need to educate students about responsible use of digital resources.

“Common Sense Media is in 15,000 schools today with its pioneering digital-citizenship curriculum, and it wouldn’t be done without Joel Klein,” said Mr. Steyer, whose organization has advised the U.S. Department of Education on digital-citizenship issues, and counts Disney and the Public Broadcasting Service among itssupporters on its website.

“I think Joel in my experience is a pretty nonpartisan person, too, just like Common Sense is,” Mr. Steyer said.

Mr. Klein served under President Bill Clinton as an assistant U.S. attorney general—a job in which he was best known for prosecuting an antitrust case against the Microsoft Corp. He was named schools chancellor in New York in 2002 by Mayor Michael R. Bloomberg, who was a Republican at the time but is now an Independent.

Mr. Steyer said educators should see Mr. Murdoch’s decision to hire Mr. Klein as a sign of good intentions. And he cautioned against judging the content and conduct of companies like Wireless Generation based on the examples of other News Corp. companies in disparate fields.

“Some people in that [education] space clearly are skeptical because it’s a media company with profit-making goals,” Mr. Steyer said of News Corp. “I think that Joel himself will be able to rise above those politics.”

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